Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Dangerous Asset

What it is:

A dangerous asset is an asset (usually a physical asset rather than a security) that carries a high degree of liability for its owner.

How it works (Example):

For example, let's say John Doe has a 10-foot-deep pool in his back yard, which is in a neighborhood full of kids. He also has a toddler and no fence around the pool. Though the pool may increase the value of his house, it is a dangerous asset because it carries a high degree of liability for John if a child falls into the pool and drowns.

Why it Matters:

Plenty of assets are dangerous: motorcycles, construction equipment, even commercial real estate. For legal risk purposes, investors and companies should minimize the number of dangerous assets they own and they should expect to pay higher insurance premiums to cover the liability involved with owning them. Many owners of dangerous assets place them in limited liability corporations or other entities to limit the amount of personal risk exposure they bear.